BLOCKBUSTER GIVES UP BIG BEAR LAIR, ENDING THREE-STORE TEST

DAN ALAIMO

COLUMBUS, Ohio -- A three-store test of Blockbuster Video departments by Big Bear supermarkets here has ended with a local video retailer taking over the leased spaces.

Buckeye Entertainment Corp., Dublin, Ohio, a Blockbuster franchisee, began operating the departments in May of 1996 and pulled out recently, said Tom Carton, Buckeye's president and chief executive officer.

He cited a cannibalization of sales where departments were located too close to his specialty stores, a high rent structure in the Big Bear agreement and an uncertain franchise fee policy on store-within-a-store departments from Blockbuster Entertainment, Dallas, as contributing to the decision.

"There were so many issues that pointed toward ending this particular opportunity that it was almost a no-brainer," said Carton. Executives at Big Bear did not return calls for comment.

In addition, SN learned that corporately run Blockbuster departments opened earlier this year at two Big Bear Units in Parkersburg, W.Va., also were closed.

A test of nine departments in Wal-Mart supercenters by Blockbuster corporate is still ongoing, according to industry sources. Executives at Blockbuster headquarters did not return calls for comment.

Shortly after the Blockbuster departments pulled out, Star Time Video here began moving in, said David Stewart, who is the owner/operator of the 10-store video specialty chain.

"We are working on getting the three stores up and running and staffed with employees so we can keep the business flow going," said Stewart. He expected to have the three older departments open by the end of last week.

The program will be expanded into three more supermarkets by April of next year, he said. Star Time will go into one existing Big Bear store, and "they are building two new stores right now," he said.

A one-time Big Bear employee, Stewart has been trying to forge a partnership with the supermarket chain since 1991, he said. "At that time, we thought that video was a natural with grocery. We are hoping that we will be able to get in here and show Big Bear that we can put up a nice department and generate some nice foot traffic for them."

Star Time's rental rate structure fits with Big Bear's current strategy of lowering prices. New releases are $2.49, for one to three days, depending on how long the title has been out, while catalog is three tapes for $1.49 for five nights.

The departments range in size from 1,500 to 2,400 square feet with about 3,500 rental units in a typical store, he said. New releases are about 20% of the inventory, said Stewart. The Star Time departments carry four video game platforms: Sony PlayStation, Nintendo 64, Sega Genesis and Super Nintendo.

"We have DVD on order and it will probably be here within a week or so," he said. The retailer will use a kiosk-based program including software and hardware to rent from Ingram Entertainment, La Vergne, Tenn. However, WaxWorks Video Works, Owensboro, Ky., is Star Time's primary video distributor. It also acquires tapes from shared transaction fee supplier, Rentrak Corp., Portland, Ore.

Star Time uses Rentrak to run guaranteed availability promotions, where the customer is offered a free rental if the promoted title is not in stock. The first such promotion in a Big Bear department was "Volcano," which streeted Sept. 30.

"Because we had just opened, I brought in 25 copies," said Stewart.

"We'd like to push about two Rentrak titles a month, with guarantees and all the promotion that goes along with having a large quantity of titles," he said. The company also runs guaranteed promotions on sell-through-priced titles like "Liar Liar," which also released Sept. 30.

In some of the stores, Big Bear owned the video fixtures and Star Time was able to just move its video inventory in. In others, "they pretty much picked up their inventory, fixtures and computer systems, pulled out and left us with a nice clean space," he said.

Stewart expects to do better than the Blockbuster franchisee because he doesn't have to pay franchise fees. "I think I can come in and make some good money," he said.

After more than a year of testing, Carton of Buckeye is not optimistic about how these particular departments will perform. "I would be surprised if the Star Time revenue would be as high as the Blockbuster revenue."

"From the standpoint of effort and attention, it is hard to justify in a major metropolitan, highly trafficked trade area where you have video super stores in very close proximity to the grocery store," he said.

The fact that Carton eventually wound up competing with himself in two locations where he owned a Blockbuster store in close proximity to the Blockbuster department being tested at a Big Bear unit made the situation untenable. The freestanding Blockbuster store was opened at the end of the test period at Big Bear.

"We found out is, you can't do both. You can't have a video department in a grocery store with that same brand on the pad of the shopping center," he said. Customers would come into the supermarket department looking for the current hits, then go straight to the specialty store if they couldn't find them, he said.

"You are taking one entity's revenue and divvying it up between two locations," he said.

In two cases, Carton's departments competed with other video specialty retailers. In one, the Mammoth Video store closed in the face of the in-store competition from Blockbuster. But in another, Hollywood Video cut into Carton's revenues, "but not as much as one might expect," he said.

"I think a store-within-a-store operation makes the most sense where it is an alternative to a 6,000 square foot store, and not an addition to it." The ideal supermarket for video rental would be one in a rural area where there is no video specialty competition nearby, he said.

But competition was not the only issue that hurt Carton's Blockbuster departments. "The Big Bear positioning on rent structure had an impact, and Blockbuster's positioning on franchise costs associated with an opportunity like this had an impact," he said.

Both Big Bear and Blockbuster have recently restructured their management, and this may have contributed to an inability to resolve such a situation, industry observers noted.

"Overall, it was a learning experience. I would say that there is a place for video in grocery, but the rent structure has to make sense.